Author: Annie Lowrey

After the failure of the third cloture vote to start formal debate on Sen. Chris Dodd’s (D-Conn.) financial regulatory reform proposal, Senate Democrats say that they might force Republicans to filibuster — the old-fashioned, all-night, stand-up-and-read-the-phone-book kind of filibuster — this evening.

Senate Majority Leader Harry Reid (D-Nev.) released a statement immediately after the blocked vote, saying, “If Republicans have ideas to bolster reform, we welcome those ideas and look forward to discussing them in full view of the public. None of this can happen unless Republicans stop standing in the way and agree to bring a bill to the floor so we can debate it. Their repeated efforts to block an open debate on Wall Street accountability legislation shows that they are trying to avoid a public dialogue so they can water down reform in secret.”

And the Democrats might force that public dialogue. Sen. Claire McCaskill (D-Mo.) tweets: “Plan is to stay all night asking consent of Republicans to let us debate Wall Street reform. I just don’t get why we can’t debate.”

Speaking this morning at the Peter G. Peterson Foundation’s fiscal summit, former President Bill Clinton forcefully argued that immigration reform is crucial to solving the country’s long-term deficit problem. Clinton, who said he had recently visited Arizona — whose governor last week signed a highly controversial and highly stringent immigration bill that, for instance, requires police officers to ask people they suspect of being in the country illegally about their citizenship status — said the belief “might not be popular.”

But, he said, “If we have any advantage over China, if we have any advantage over India, it’s that we’ve got somebody from everywhere here, and they do well.” Saying that the country “still works for immigrants,” he went on to explain:

The real reason there’s anti-immigration sentiment is that it’s white, male factory workers without a college degree that got killed in the last decade…. The burdens of the last decade’s economic downturn were on white male high school graduates, or non-high school graduates, or [people with] a couple years of college, who shivered in this economy. Their taxes would be lower if we got more taxpayers…. The pressures on social security and the changes we have to make will be less draconian if there’s more people in the system. I don’t think there’s any alternative but for us to increase immigration. We can start [to increase immigration] at the areas at the top and the bottom [of the earnings spectrum] that will not displace people who are the most insecure [jobs-wise]. I don’t see any way out of [the fiscal crisis] unless that’s part of the strategy.

Last week, the Obama administration started reaching out to Sen. Scott Brown (R-Mass.), presumably in an effort to woo him as a swing vote for immigration reform. Senate Majority Leader Harry Reid (D-Nev.) and the White House hope to move on immigration reform sometime this year.

With Democrat Sen. Ben Nelson (D-Neb.) siding again with the Republicans — none of whom crossed over to vote for cloture to start debate on Sen. Chris Dodd’s (D-Conn.) financial regulatory reform bill — the effort has failed for the third day in a row on a vote of 56 to 42. Reid immediately moved to reconsider, meaning that the Senate will make a fourth attempt tomorrow.

Dodd and Majority Leader Sen. Harry Reid (D-Nev.) have repeatedly slammed Republicans for blocking the start of formal debate on the bill, saying that they are keeping negotiations secret and that the two parties should hammer out their differences on the floor.

In truth, the two bills are not that dissimilar. One major change in the Republican proposal — the reform of Fannie and Freddie — is too complex to insert into the Dodd bill. But many other changes would be easy to sub in. Senate staffers say negotiations are centering on the Democrats’ adoption of the Republican version of resolution authority, which is virtually identical in the Republican proposal except that that any losses incurred by the government are recouped after the formal liquidation, rather than before (via the Obama bill’s $50 billion fund).

The Republicans viewed as most likely to switch continue to be Olympia Snowe (Maine), Susan Collins (Maine) and George Voinovich (Ohio).

In The New York Times, University of Chicago economist Casey Mulligan offers some housing-market optimism:

Recent reports on housing starts, new home sales and housing prices show that the housing recovery continues….

Although the housing inventory exceeded the demand in 2007 and 2008, we have known for a while that the fundamental supply and demand ingredients would permit a genuine housing recovery to begin in 2009. As demand caught up, housing prices stopped falling and stabilized at more normal levels.

Although housing prices should not be expected to return to their 2005 peak any time soon, housing sector data released last week suggest that housing prices can head somewhat higher. Housing permits and housing starts have continued higher in the last couple of months. New home sales were higher in March than they had been for a while.

These seems overly sunny to me. First, the demand side of the equation. Massive governmental interventions underpinned much of the housing recovery in the past year, including the $12.6 billion in tax credits for home-buyers and the $1.1 trillion mortgage-backed securities buy-up program by the Federal Reserve. Economists have pooh-poohed the tax credits for simply providing a subsidy to people who would have bought a house anyway, but the Treasury says they might have accounted for up to a quarter of housing demand. And with those programs sunsetting — the Fed program last month, the tax credits at the end of the week — demand looks certain to fall, particularly since it will not be buoyed by declining joblessness or growing wages any time soon.

On the supply side of the equation, there were 930,000 houses in the foreclosure pipeline in the first quarter. Fannie Mae and Freddie Mac own a further 500,000. (S&P says the shadow inventory of homes might take three years to clear.) On top of that, housing starts are rising.

I don’t consider it unlikely that the housing market might stabilize nationally. But, in many markets, the pressures to the downside remain extraordinary. And housing starts do not a real recovery make.

Tonight, the Republicans released a counter-proposal to Sen. Chris Dodd’s (D-Conn.) financial regulatory reform package. Here is a comparative analysis of the two proposals.

First, the similarities. There are many. Both bills create systemic regulators to keep watch over risky firms. Both ensure that taxpayers will never be on the hook for Wall Street bailouts again by creating some form of resolution authority – Democrats by taxing banks for a $50 billion liquidation fund, to be used in the event that a systemically important bank needs to be shut down; Republicans by requiring that the Federal Deposit Insurance Co. get back any government money spent in the process of liquidation. Both require hedge funds to answer to a regulator: in the Democrats’ case, the Securities and Exchange Commission; in the Republicans’, a new oversight committee. Both vaguely hold that credit ratings agencies will receive bolstered oversight, but in both cases, the ratings agencies’ fundamental business models do not change. Both provide weak proposals to institute some form of the Volcker Rule, banning proprietary trading at many banking institutions. Both improve Fed oversight, though without a strong requirement for an audit of the Fed’s books. Both create a powerful consumer financial protection agency with rulemaking authority, though only in the Democrats’ version would the CFPA have the ability to oversee firms like payday lenders. Both make derivatives a regulated product, Democrats by requiring that derivatives used by financial firms to speculate go through clearinghouses; Republicans by giving a regulator authority to say if they should. Both make the president of the Federal Reserve Bank of New York a presidential appointee.

The Republican proposal deals with two things that the Democratic proposal does not touch. First, the Republicans take on the government-sponsored entities Fannie Mae and Freddie Mac — bailed out during the collapse of the housing bubble. Democratic staffers say that figuring out how to handle the GSEs and re-regulating the trillion-dollar market in government-backed mortgage finance requires its own bill. They have just started researching what they want to accomplish and how best to achieve it. Republicans, in fewer than 400 words, take the massive market on. They create a special regulator and indicate that no further taxpayer money should be at risk.

Second, the Republicans create new loan-underwriting standards, saying, “Anyone who securitizes a residential mortgage loan that does not meet new statutory minimum underwriting rules promulgated by federal prudential banking regulator will be required to retain at least a 5 percent economic interest in the trust.”

The Dems’ bill more qualitatively gives more oversight to the Fed to make discretionary decisions, such as to require big banks or firms to post more collateral. The Republicans’ bill does not give more oversight to the Fed — which many Republicans believe overstepped significantly in the last crisis, as noted in the proposal — and does not indicate when or whether the government would force banks to keep more cash.

The Republicans’ consumer financial oversights are significantly weaker than the Democrats’. The Republican-suggested Council for Consumer Financial Protection — the analog of the Democrats’ CFPA — includes the head of the Federal Reserve, the comptroller of the currency, the head of the FDIC and three “consumer protection experts.” It does not say how those consumer protection experts will be picked. Nor does the Republican proposal specify how its CFPA would be funded or where it would be housed. (Controversially, Dodd’s bill places it in the Fed.) And the Republicans’ version of the CFPA does not have as broad oversight or as strong and clear a mandate.

Here are side-by-side explanations of the most important provisions in the two bills:

Resolution Authority

Dodd: The bill requires the Treasury Department, FDIC and Federal Reserve to agree to liquidate a firm. Three bankruptcy judges must agree with their decision. The biggest financial firms will fund a $50 billion pool that the government will use in the process of liquidation to ensure taxpayers do not foot the bill. The bill allows the FDIC to borrow from Treasury in the process, but only if it “expects to be repaid from the assets of the company being liquidated.” The assets are sold off at the government’s discretion. Taxpayers get repaid first. The firm’s management is fired and shareholders are wiped out.

Republican: Like in the Democrats’ bill, the Treasury Department, FDIC and Federal Reserve together determine that a firm needs liquidation to start the process. The Treasury secretary consults with the president to ensure that he or she agrees that breaking up and selling off the company will help preserve financial stability. Then, the Treasury secretary petitions the D.C. courts to authorize the FDIC as the company’s receiver before the company is liquidated by the government. The proposal notes: “The FDIC would have to recoup from creditors any amounts that a creditor had received in excess of what it would have received in bankruptcy. This gives the FDIC the flexibility to advance funds to creditors to prevent or mitigate a systemic crisis, but then ensures the FDIC is not bailing out creditors.”

The Federal Reserve

Dodd: The bill allows for the Federal Reserve’s lender-of-last-resort authority and expands Federal Reserve oversight of big banks and other financial firms. It provides for stronger congressional oversight of the Fed itself and makes the president of the Federal Reserve Bank of New York a presidential appointee.

Republican: The bill also makes the president of the Federal Reserve Bank of New York a presidential appointee. It does not expand the institution’s regulatory powers. If anything, it limits them, adding an oversight measure so that the Fed and Treasury determine “where and when emergency actions…constitute credit channeling” so that the Fed cannot pick “winners and losers” in the event of the financial crisis. It is unclear how it limits which banks the Fed supervises.

Consumer Financial Protection Agency

Dodd: The bill creates a Consumer Financial Protection agency paid for by the Fed. It has oversight over banks with assets more than $10 billion, big shadow-banking institutions, any mortgage-related businesses, credit card companies, and payday lenders. It can impose consumer-protection measures.

Republican: The bill creates a Council for Consumer Financial Protection comprising three independent experts, the head of the FDIC, the Comptroller of the currency and the head of the Fed. It has “primary supervision and enforcement authority” over large banks, non-bank mortgage-originators and other entities. Small community banks and thrifts remain overseen by their primary prudential regulators.

Systemic Regulation

Dodd: The bill creates a new Financial Stability Oversight Council to “focus on identifying, monitoring and addressing systemic risks posed by large, complex financial firms as well as products and activities that spread risk across firms. It will make recommendations to regulators for increasingly stringent rules on companies that grow large and complex enough to pose a threat to the financial stability of the United States.” The Fed can force big companies to raise new capital.

Republican: The proposal says the new Council for Consumer Financial Protection will have systemic oversight. It also says that there were “failings of regulation and oversight by the Federal Reserve in the recent crisis” and therefore it creates a director of regulation at the Fed, a presidential appointee. He or she is “required to testify annually and report to Congress and the public concerning Fed supervision and regulation of” big and systemically important financial institutions and risks.

Read it in full after the jump:

Damien Paletta at The Wall Street Journal has gotten a look at a 20-page Republican counter to Sen. Chris Dodd’s (D-Conn.) financial regulatory reform bill. The proposal is impossible to parse, as the reforms are complex and the details scarce, so take this with a grain of salt. But Paletta says the Republican proposal includes a “resolution authority” provision without a bank-funded “bailout fund,” much maligned by Republicans such as Sen. Mitch McConnell (Ky.). Instead, Republicans put the resolution process through the Federal Deposit Insurance Corporation, which would be required to recoup its costs before paying back counterparties.

The bill also reportedly limits the amount of funds the Federal Reserve can disburse in a financial emergency; creates a kind of consumer protection council; creates a supermonitor for financial stability; and gives regulators the authority to put swaps on exchanges.

The bill additionally contains a series of reforms of the government-sponsored entities Fannie Mae and Freddie Mac. Dodd and the Democrats plan to deal with housing finance in a separate comprehensive bill, though Republicans have said they want housing finance reforms in financial regulatory reform.

With Sen. Ben Nelson (D-Neb.) siding again with the Republicans, the Senate for the second time just failed to agree to start debate on Sen. Chris Dodd’s (D-Conn.) financial regulatory reform proposal. The vote, which is going through final processing right now, was 57 to 41, with 60 needed to break a Republican filibuster and proceed to formal consideration of the bill.

Senate Majority Leader Harry Reid (D-Nev.) plans to continue holding these cloture votes every day in an attempt to show Republican obstinacy in the face of popular and necessary reforms.

This morning, Senate Majority Leader Harry Reid (D-Nev.) came out swinging against Senate Republicans’ obstruction of debate on Sen. Chris Dodd’s (D-Conn.) financial regulatory reform bill. In a press release, he argues:

The American people also demand that their leaders discuss these details and improve on these ideas.  They have two simple requests: One, that their leaders look out for their economic security; and two, that their legislators legislate.  In other words, they want us to look out for their jobs and they want us to do our own.

Right now, Senate Republicans are refusing to do either. Yesterday they stood together, en bloc, to block us from moving this bill to the floor.  They didn’t even want the Senate to talk about legislation as part of the normal legislative process.

More than two years after the financial collapse that sparked a worldwide recession, Senate Republicans are claiming we’re moving too fast. They are claiming that only a fully negotiated and agreed-upon bill can come up for debate.  They want all the details to be worked out beforehand, behind closed doors and out of view from the public. That is unprecedented in the 220 years of the United States Senate.  As we all learned in civics class, that’s not how the legislative process works.

The letter does not mention Sen. Ben Nelson (D-Neb.), who surprisingly sided with the Republicans last evening in refusing to vote to start formal debate on the bill. (Reid switched his final vote to no for procedural reasons.)

And Reid has called another cloture vote for 4:30 p.m. this evening. As of this morning, none of the likely crossover voters — such as Sen. Olympia Snowe (R-Maine) — have publicly indicated that they are willing to side with the Democrats or that their requests have been met.

Washington is buzzing with the various testimonies and commissions ongoing today. Watch Fed Chairman Ben Bernanke and other speakers at the National Commission on Fiscal Responsibility and Reform, the president’s deficit commission, live here. And watch Sen. Carl Levin’s (D-Mich.) Senate Permanent Subcommittee on Investigations interrogate Goldman Sachs executives live here.

Both the debt commission and Levin commission have released prepared remarks as well.

In today’s prepared testimony, Ben Bernanke argues that the government needs to fix its tax code and cut entitlements, or else face fiscal doom:

[The] federal budget appears set to remain on an unsustainable path….Unfortunately, we cannot grow our way out of this problem. No credible forecast suggests that future rates of growth of the U.S. economy will be sufficient to close these deficits without significant changes to our fiscal policies….

The commission will have the difficult job of weighing the economic, social, and other benefits of these [entitlement] programs and comparing the implications of cuts in these areas against other means of closing the fiscal gap. Choices regarding Medicare, Social Security, and other spending programs cannot be made in a vacuum but must be combined with decisions about how much revenue the government will raise and how it will raise it. No laws are more basic than the laws of arithmetic: For fiscal sustainability, whatever level of spending is chosen, revenues must be sufficient to sustain that spending in the long run.

And here are the Goldman testimonies. On the first panel are Daniel Sparks, former head of the mortgages department, Joshua Birnbaum, former managing director in structured products, Michael Swenson, managing director in structured products, and Fabrice Tourre, indicted in the Securities and Exchange Commission civil fraud case against Goldman Sachs and executive director in structured products. On the second panel are David Viniar, Goldman’s chief financial officer, and Craig Broderick, the chief risk officer. And on the third and final panel is Lloyd Blankfein, chief executive officer.

Tourre argues, “I deny — categorically — the SEC’s allegation. And I will defend myself in court against this false claim,” and goes on to detail that he made full disclosures about the structure of the mortgage-backed securities deal to the client who took the losing half of the bet.

And Blankfein’s testimony is largely conciliatory, though he says that Goldman has done nothing illegal or unethical with its mortgage products: “While we strongly disagree with the SEC’s complaint, I also recognize how such a complicated transaction may look to many people. To them, it is confirmation of how out of control they believe Wall Street has become, no matter how sophisticated the parties or what disclosures were made. We have to do a better job of striking the balance between what an informed client believes is important to his or her investing goals and what the public believes is overly complex and risky.”

This morning, Standard & Poor’s released its S&P/Case Shiller housing index data for February. It is not pretty. The composite index declined for the fifth straight month. Of the 20 cities Case Shiller follows, only Los Angeles, San Diego, San Francisco, Washington, Las Vegas and New York registered gains in home prices between January and February — in all of the 14 other cities, home prices declined.

In 11 of the 20 cities, though, home prices increased year-on-year, and for the first time since December 2006, the two composites Case Shiller measures both made year-on-year gains.

Notably, two major Obama administration programs supporting house prices are at their end. The Federal Reserve’s initiative to buy up billions of dollars of mortgage-backed securities from Fannie Mae and Freddie Mac ended at the end of last month. And the first-time homebuyer’s tax credit expires on April 30. The sunset of those programs will dampen enthusiasm about a possible March or April uptick in prices.

Today is a busy day for economic wonks and other economist-types in Washington. Below is a brief guide to all the action:

• At 9 a.m., the Federal Open Markets Committee — the board on the Federal Reserve that sets interest rates — starts a two-day meeting in Washington. The FOMC is expected to announce tomorrow afternoon they are holding rates near zero for an “extended period”, though more hawkish members (economists who believe that the risk of inflation means the FOMC should raise rates) may dissent. For the past two meetings, Kansas City Federal Reserve President Thomas Hoenig, a voting member of the committee, has argued against his more dovish colleagues and said the Fed should stop signaling that it will not raise rates anytime soon (axing the “extended period” language). Any suggestion that the Fed might tighten monetary policy in the second half of the year will be news-making and rate-changing.
• At 10 a.m., the Senate Permanent Subcommittee on Investigations, headed by Sen. Carl Levin (D-Mich.), meets and hears testimony from Goldman Sachs employees regarding the company’s role in the financial crisis. Planning to testify are chief executive Lloyd Blankfein, chief financial officer David Viniar, and London-based trader Fabrice Tourre, charged in the Securities and Exchange Commission’s civil fraud suit against Goldman. Expect fireworks from Levin, and a conciliatory tone from Blankfein.
• Also at 10 a.m., the bipartisan Presidential Budget Commission meets for the first time and will hear testimony from Federal Reserve Chairman Ben Bernanke. Last weekend, former Sen. Alan Simpson (R-Wyo.), called the debt commission a “suicide mission”; economists believe there is no way for the United States to balance its budget without raising taxes, and Republicans have not supported a tax increase in more than 20 years. “Americans are right to be concerned that this commission is merely a front to provide Democrats with the political cover they need to impose massive tax hikes,” House Minority Leader John Boehner (Ohio) recently argued.

Senate Banking Committee Chairman Chris Dodd (D-Conn.) and Ranking Member Richard Shelby (R-Ala.) discuss financial regulations on Monday. (EPA/ZUMApress.com)

Yesterday evening, Senate Democrats began the procedural endgame to their push to reform the regulation of the financial sector. In a 57-41 vote, with Democrat Sen. Ben Nelson (Neb.) joining Republicans in opposition, the Senate failed to agree to start formal debate of the American Financial Stability Act, crafted by Sen. Chris Dodd (D-Conn.). Democrats need party unity and a Republican crossover to move the bill forward, and the G.O.P. has signaled it wants to sign on to the popular legislation — particularly in light of the public outrage at Wall Street giants such as Goldman Sachs. But working long hours over the weekend and on Monday, the Republican and Democratic sides failed to reach a compromise.

Image by: Matt Mahurin

Unusual for legislation under such long consideration, substantive portions of the bill remain the subject of intense debate. Republicans object to central provisions in Dodd’s financial reform bill — and in some cases are advocating for far more stringent measures. Even many Democrats are advocating for adopting stricter rules to prevent banks from becoming too big to fail, too interconnected, or too risky in the future.

When Democrats manage to get a crossover to begin formal debate, a number of central tenets of the bill might change via amendment. In the meantime, significant rewriting might take place before the bill moves forward. Here is a guide to the most important issues at hand, and the key players advocating for changes.

Audit the Fed. Last year, Rep. Ron Paul (R-Texas) introduced a House bill to audit the Federal Reserve. It garnered 313 cosponsors. A similar measure in the Senate, a budget amendment sponsored by Sen. Charles Grassley (R-Iowa), passed 95 to 1. But the provision did not make it into any final legislation, in Dodd’s proposal or elsewhere. And with the Federal Reserve’s balance sheet more than double its size before the financial crisis — swollen with $1.1 trillion in mortgage-backed securities purchased from Fannie Mae and Freddie Mac plus toxic assets from failed companies like Bear Sterns — a bipartisan group of senators want to force a thorough independent audit of the Fed’s books. Sen. Bernie Sanders (I-Vt.) is sponsoring an amendment that would open up the Fed to an Government Accountability Office audit. The amendment has the stated support of Sen. Russ Feingold (D-Mich.) and Sen. Jim Bunning (R-Ky.), among others, and is expected to come up.

End too big to fail by capping bank size. Sanders also wrote a measure to break up the banks that failed to make it out of the Senate Budget Committee last week. But the notion of breaking up big banks is a popular one, and sure to come via amendment. Dodd’s bill as currently written gives the Federal Reserve and other regulators the ability to seize and break up financial firms it deems systemically important and systemically dangerous. But that is meant only as a “last resort,” and members of both parties consider the language too wan. Sen. Sherrod Brown (D-Ohio) and Sen. Ted Kaufman (D-Del.) last week introduced the Safe Banking Act, which they plan to offer as an amendment to the Dodd bill. It mandates hard leverage and size caps on banks and other financial firms; limits commercial banks’ assets to 2 percent of GDP and non-banks’ assets to 3 percent; and imposes a 16-to-1 leverage cap, among other provisions.

Reinstitute Glass-Steagall provisions. Another popular way to effectively limit bank size is to return to the Depression-era Glass-Steagall rules. The Glass-Steagall Act, mostly repealed in 1999, prevented banks from having both commercial and investment banking arms — as, for instance, J.P. Morgan Chase does today. Sen. Maria Cantwell (D-Wash.) and Sen. John McCain (R-Ariz.) plan to introduce an amendment reintroducing the rule and thus requiring big, diversified banks to split themselves up. Shelby, Sen. Johnny Isakson (R-Ga.) and Sen. John Cornyn (Texas) also support the measure.

An effectively similar, if functionally different, way of breaking up banks or limiting their size is by instituting the Volcker Rule — which bars banks from speculating with their own money by “prop trading” or investing in hedge funds. The current Dodd bill promises to institute something like the Volcker Rule, creating a commission to look at how to institute it down the road. But Sen. Jeff Merkley (D-Ore.) and Sen. Carl Levin (D-Mich.) have ready a measure introducing a more-stringent version immediately.

Fix the ratings agencies. The Dodd bill does little to fix the credit ratings agencies, whose profligate stamping of AAA ratings on collapsing subprime mortgage-backed securities helped to stoke the crisis. (The companies have a conflict of interest at the core of their business, in that they are paid by the companies whose securities they rate.) The Dodd bill creates a new office at the Securities and Exchange Commission to look closely at credit ratings agencies — but does little more to further reform them. Numerous Democratic senators have cited the issue as a major weakness in the bill, and Senate staffers say it is unlikely to go unchanged. Sanders has said he will introduce new language to strengthen oversight over and regulation of the agencies.

Guarantee no taxpayer money will go to bank bailouts. Republicans have derided the Dodd bill’s resolution authority fund — wherein the government will tax $50 billion from the banks, creating a pool of cash to be used by the Federal Reserve to shut down failing firms — as creating “permanent bailouts.” GOP politicians including Sen. Mitch McConnell (R-Ky.) have cited it as a major point of contention. But Senate staffers say that rather than killing the resolution-authority fund, Republicans want language explicitly guaranteeing taxpayers will not be on the hook for future bailouts.

Keep the Fed the regulator of little banks. Under the Dodd bill, the Federal Reserve would have oversight only of banks with more than $50 billion in assets. But Sen. Kay Bailey Hutchison (R-Texas) and Sen. Richard Shelby (R-Ala.) oppose this measure and want the Fed to have oversight of small banks as well — ensuring that the Fed does not become overly concerned with the business of big banks and ensuring that it keeps an eye on the small financial companies that can be the bellwether of bad economic times. Hutchison has said she plans to “certainly have an amendment that assures that state banks and community banks will be able to have access to be members of the Federal Reserve.”

Make the Consumer Financial Protection Agency truly independent. Sen. Jack Reed (D-R.I.) has promised to introduce amendment moving the Consumer Financial Protection Agency outside of the Fed.

Improve hedge fund reporting. Reed also plans to introduce an amendment closing a loophole in the Dodd bill that might let some private equity firms, venture capital firms, and hedge funds avoid registering with the Securities and Exchange Commission.

Charles Smith at Seeking Alpha has an interesting post estimating that the number of people living in their homes but not paying their mortgages — people delinquent on their mortgages, people in foreclosure, strategic defaulters and others — might be as high as 4.4 million. He uses FDIC and Foresight Analytics data to extrapolate:

14 percent of the approximately 52 million residential mortgages outstanding in the U.S. were delinquent in the first quarter. This amounts to 7.3 million mortgages. Only 5.5 percent were on nonaccrual status, however. This amounts to 2.9 million mortgages. Nonaccrual means the lender is no longer posting income on the loan. Depending on the length of time the loan has failed to accrue, foreclosure proceedings may have already begun (with eviction to follow at some point), but not necessarily. Assuming that all loans on nonaccrual status represent vacant properties, it means at least 4.4 million (7.3 – 2.9 = 4.4) are occupied by people who are not paying for them, for whatever reason. This number has increased by 3 million since the end of 2007.

I’ll note that if we presume that each household contains around 2.5 people (I don’t know whether households in foreclosure tend to be bigger or smaller than others), that works out to 11 million people. Other “squatter” estimates are similarly big. Moody’s Economy.com has guessed that 6 million people continue to live in their homes during delinquency or foreclosure, and a further 1 million are undergoing mortgage modification. Regardless of the exact count, it underscores the severity of the ongoing foreclosure crisis and the parlous state of the housing market — as well as the need for Congress to press for principal reduction.

Sen. Ben Nelson (D-Neb.) has voted no on the cloture motion to start debate on Sen. Chris Dodd’s (D-Conn.) financial regulatory reform bill — meaning the motion will likely fail, 58 to 42, short of the 60 votes needed. Republicans will tout this as an extraordinary victory demonstrating bipartisan opposition to moving forward on financial regulation until the bill is tried, tested and sorted. But my guess is that Nelson knew the motion would not pass, having failed to garner Sen. Olympia Snowe’s (R-Maine) vote earlier today, and decided not to vote for it at that point.

Regardless, the optics are terrible. Nelson’s “Cornhusker kickback” delayed health care reform. Today, news broke that Warren Buffett, the head of Berkshire Hathaway and a resident of Omaha, lobbied for the Senate Agriculture Committee, on which Nelson sits, to create a derivatives loophole that would benefit his company to the tune of billions, a proposal Senate Democrats swatted down. And now, Nelson is holding up progress on the financial front again.

In 15 minutes or so, Senate Majority Leader Harry Reid (D-Nev.) will call a vote to start debate on Sen. Chris Dodd’s (D-Conn.) financial regulatory reform bill. Senate staffers say that the vote will not gain a Republican crossover, and formal debate will not yet begin on the bill. To watch the ongoing debate, see C-Span 2 here.

Calculated Risk has a smart analysis — with graphs! — on the first-quarter housing and rental vacancy rates released by the Census Bureau this morning. The rate of homeownership fell to 67.1 percent, its lowest level in more than a decade.

The homeowner vacancy rate (the percentage of total housing units that are for sale but have not found a buyer) declined to 2.6 percent; it averaged 2.85 percent in 2009. Calculated Risk notes, “A normal rate for recent years appears to be about 1.7 percent. This leaves the homeowner vacancy rate about 0.9 percent above normal. This data is not perfect, but based on the approximately 75 million homeowner occupied homes, we can estimate that there are close to 675 thousand excess vacant homes.” And the rental vacancy rate declined slightly to 10.6 percent, after averaging 10.63 percent last year. “It’s hard to define a ‘normal’ rental vacancy rate based on the historical series, but we can probably expect the rate to trend back towards 8 percent,” the blog says.

The word “normal” is crucial there. It is difficult, if not impossible, to prescribe housing norms, because the housing bubble and its attending credit bubble distorted the economy so much, for so long. One might expect to see those statistics returning to their trend lines. But homeowners are defaulting at historically high and in some cases rising rates. Until the foreclosure crisis stops — and, again, there is no sign of that yet — there is no saying what “normal” is.

A new Washington Post/ABC News poll shows that Americans overwhelmingly approve of financial regulatory reform, with two-thirds of respondents supporting the measures. Half approved of how President Barack Obama has handled the issue, with an equal number disapproving. Additionally, and not surprisingly, respondents approved of easier-to-understand measures, regardless of the partisan politicking surrounding them. For instance, the people polled approved of creating a bank-funded liquidation pool — derided by Republicans as a “permanent bailout” fund — more so than derivatives reform, a complicated measure with bipartisan support.

The Wall Street Journal’s Jon Hilsenrath has a good piece on the problems facing the Federal Reserve as it tries to slim down its balance sheet, now swollen with $1.1 trillion in mortgage-backed securities and totaling more than $2.3 trillion. The story notes:

Fed staff in the coming week will present models to forecast how different approaches to reducing the portfolio might play in markets. But some officials worry that they have little experience selling assets and can’t rely exclusively on models to predict how markets will react. That — and a worry about disturbing the vulnerable housing market — has top officials inclined to proceed gradually and cautiously, at a predictable pace. …

In April, Narayana Kocherlakota, president of the Minneapolis Federal Reserve Bank, called for monthly sales of $15 billion to $25 billion to eliminate the Fed’s mortgage holdings within five years…. Some Fed policy makers — among them Charles Plosser of Philadelphia, Jeffrey Lacker of Richmond and Kevin Warsh at the Fed board — are sympathetic.

The Fed — which started buying up Fannie Mae and Freddie Mac securities to perform “quantitative easing,” a way to pump money into the economy when the interest rate is near zero, and stopped on March 30 — now owns a quarter of U.S. mortgage debt. Right now, that debt is actually making the Fed money, generating interest payments worth $20.4 billion last year. But the Fed unloading such massive amounts of these securities will necessarily push their prices down (meaning the Fed could lose money on them) and mortgage rates up (slowing any housing recovery).

But such is the position the Fed is in, unraveling its extraordinary crisis programs even as the recovery is fragile. The Treasury faces a similar problem with its 1.5 billion shares of Citigroup, more than a quarter of the company’s stock.

With a cloture vote to open formal debate on Sen. Chris Dodd’s (D-Conn.) financial regulatory reform bill scheduled for 5 p.m. this evening, Senate Democrats spent the weekend negotiating with Republicans likely to support the bill, including Maine Sen. Olympia Snowe.

It seems that Democrats do not yet have the crossover support.

Sen. Mitch McConnell (Ky.), the minority leader, told FOX News Sunday, “It’s my expectation that we will not go forward with this partisan bill tomorrow,” and that “it’s not ready yet.” On NBC’s Meet the Press, Sen. Richard Shelby (R-Ala.) and Sen. Dodd said much the same. “I think that nothing happens between now and tomorrow,” Shelby said. “The Democrats will not get cloture.”

But Republican opposition to the bill seemed to be softening, with issues for debate winnowing down to: the $50 billion “resolution authority” fund, which some Republicans wrongly insist would mean taxpayer funded bailouts for big firms; the role of the Consumer Financial Protection Agency; and a provision backed by Republicans to guarantee no taxpayer funds will be used for bailouts.